A Sputnik Moment for U.S., China

Mar 28, 2018
Management

Technology Race Goes Beyond Tariffs, Gupta Says

Anil K. GuptaSMITH BRAIN TRUST – The Soviet Union rattled the United States and triggered the Space Race in 1957 with the launch of Sputnik. Back on Earth in 2018, professor Anil K. Gupta at the University of Maryland’s Robert H. Smith School of Business sees a different kind of race heating up.

“Whether we like it or not, the U.S. and China are in a technology race,” he says. “It’s very similar to the Sputnik moment.”

Gupta, author of "The Silk Road Rediscovered," looks beyond President Donald Trump’s tariff plans to the broader issue of intellectual property protection. Despite China’s political rhetoric, he says, the world’s second-largest economy essentially enforces an on-the-ground policy of “your technology for access to my market.”

All Grown Up

Gupta says the United States could afford to look the other way 10 years ago, but China is now a much bigger economy in the midst of a warlike effort to unseat the United States as the world’s technology leader. A big part of this effort, he says, is to steal or buy Western technology.

“The days of playing softly are over and should have been over a few years back,” he says. “I entirely agree with the Trump team’s view that previous administrations have allowed China to get away with exploiting the U.S. and the rest of the world.”

Gupta traces some of the problem to inadequacies at the World Trade Organization. “The WTO was never designed for a mercantilist economy like China, which has used the WTO as a fig leaf to exploit other countries’ weaknesses to protect their own interests,” he says.

Western politicians from all major parties recognize the threat. “There is widespread agreement among Republicans and Democrats, between the U.S. and Europe and, importantly, between the government and U.S. corporations,” Gupta says. For evidence, he points to anti-China rhetoric issued in recent years by both the U.S. Chamber of Commerce and the European Union Chamber of Commerce.

Playing Different Games

The issue is not so much that China is playing by different rules, Gupta says. It’s that China is playing a different game. “The challenge for any U.S. administration is that China plays the game of ‘political economy,’ whereas the U.S. has historically treated politics and economics as more loosely connected,” Gupta says. “I agree that it is time for the U.S. to also play the game of political economy.”

He says the right approach for the United States is to insist on reciprocity. This is what Trump has emphasized in recent statements. “You put a 25 percent duty on American cars, we’ll do the same,” Gupta says. “You block acquisitions by U.S. companies in China, we’ll do the same. You subsidize your companies, we’ll impose countervailing duties. And, so forth.”

China would have a difficult time with a “holier-than-thou” attitude if the United States were merely reciprocating existing Chinese policies. He says French President Emmanuel Macron tried this approach in January during a trip to China.

“He was very polite but also very direct,” Gupta says. “He supported the idea of reviving the Silk Road, but he reminded China that the ancient Silk Road was a two-way street. The Chinese hosts were speechless. What could they say?”

Sorry, Boeing

The United States holds the upper hand in any trade war precisely because of its deficit. “As a trade surplus country, the Chinese economy will take a bigger hit than the U.S. economy,” Gupta says.

At the same time, losers will emerge at the industry and firm level in the United States. Boeing, for example, could take a hit, along with soybean growers and pork producers. “But the U.S. needs to look at what’s good for the country as a whole, rather than worry about individual industries or companies,” Gupta says.

In any case, he says, China will have limited options if it decides to punish specific U.S. companies or industries. “If they don’t buy from Boeing, they must turn to Airbus,” Gupta says. “But would it be in China’s interests to make Airbus a monopoly supplier to them? No. Also, Europe is not about to soften up on China anyway.”

Regarding soybeans, Gupta says the only other big producer is Brazil, which is about to enter the winter season when there is no soybean harvesting. “China does not have other large suppliers to turn to,” he says.

Waiting on the Details

Gupta says the tariffs and potential countermeasures are still only threats, and it’s too soon to tell how things will settle. “We have to wait and see the details of how much tariffs the U.S. announces on which Chinese products,” he says.

That will happen in about two weeks. After that, U.S. companies will have 30 days to comment and submit recommendations. Only then will the final tariffs be announced. In the meantime, U.S. Commerce Secretary Wilbur Ross says the White House continues to hope for negotiations with China.

“Right now, it’s mostly posturing,” Gupta says. “We need to wait for the details. As with the Japanese during the Reagan era, we may end up with a negotiated resolution rather than a trade war.”

Watch more
Professor Anil K. Gupta discusses implications surrounding a U.S.-China trade war on China Global Television Network (CGTN America) on March 2, 2018. Video (4:19)...

GET SMITH BRAIN TRUST DELIVERED
TO YOUR INBOX EVERY WEEK

SUBSCRIBE NOW

Tags: 

About the Expert(s)

GuptaAnil

Primary Research Areas

  • Emerging Markets (especially China and India)
  • Frugal Innovation
  • Global Strategy & Organization
  • Corporate Innovation and Entrepreneurship

More In

Management

Comic Books for Complex Issues

The New York Fed recently decided to explain monetary policy in a comic book, set in outer space. It had us wondering: What other complex business topics would be helpful to see in simplified, comic book fashion?

Aug 09, 2019
How To Get Better Care from Your Doctor

Want better care from your doctor? It’s as simple as just being nice and saying thank you, according to new management research.

Aug 07, 2019
Farewell, Summer Fridays

In summer, every Friday feels a little like the day before a long weekend. Many of your colleagues are already on vacation (or at happy hour). No one attempts to host a meeting or make consequential decisions. Soak it in. It's almost fall.

Aug 05, 2019